Budget Amendment ID: FY2013-S4-53-R2

2nd Redraft OTH 53

Further Regulating Mutual Companies

Ms. Jehlen and Messrs. Joyce, DiDomenico and Montigny and Ms. Chang-Diaz moved that the proposed new text be amended by inserting at the end thereof the following new section:-

SECTION 1: Section XX. Chapter 175 of the General Laws is amended by inserting, after Section 19W, the following new section:-

Section 19X. (a)(1) A majority of directors at a mutual company, as defined by section 19G of chapter 175, shall be independent directors by January 1, 2017.

(2) No director shall qualify as independent unless the board of directors affirmatively determines that the director has no direct material relationship with the mutual company and is not a partner, shareholder or other officer of an organization that has a material relationship with the company.

(b) (1) Mutual companies, as defined by section 19G of chapter 175, shall have a compensation committee composed entirely of independent directors established by January 1, 2017.

(2) The compensation committee shall have a written charter that addresses the committee’s purpose and responsibilities, which, at a minimum, shall be to have the direct responsibility to:

i. Review and approve the mutual company’s goals and objectives relevant to the Chief Executive Officer’s compensation, evaluate the CEO’s performance in light of those goals and objectives, and, either as a committee or together with the other independent directors, determine and approve the CEO’s compensation level based on this evaluation; and

ii. Make recommendations to the board with respect to non-CEO executive officer compensation, and incentive compensation and equity based plans that are subject to board approval.

SECTION 2: The Commissioner of Insurance shall promulgate regulations utilizing industry best practices to define the term “independent” as used in the preceding section, provided however that a director shall not be considered independent if:

i. The director is, or has been within the last three years, an employee of the mutual company, or an immediate family member is, or has been within the last three years, an executive officer, of the mutual company;

ii. The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the mutual company, other than director and committee fees and pension or other forms of deferred compensation for prior service, provided such compensation is not contingent in any way on continued service; or

iii. The director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the mutual company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues.

iv. The director or an immediate family member is, or has been within the last 3 years, employed as an executive officer of another company where any of the mutual company’s present executive officers at the same time serves or served on that company’s compensation committee.

The commissioner shall update such regulations from time to time